Tax collected at the stage of detention can be claimed as GST refund if excess tax is paid in regular returns

Last updated: 25 March 2025

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The Madras High Court has ruled that if tax was paid at the detention stage under Section 129 of the CGST Act, and subsequently excess tax was paid in regular GST returns (Form GSTR-3B), the taxpayer is entitled to claim a refund for that excess amount. The court dismissed petitions challenging a circular that had caused confusion, clarifying that tax should not be levied twice.

Court :
Madras High Court

Brief :
The Hon'ble Madras High Court in M/s Chetna Steel Tubes (P.) Ltd. v. Goods and Service Tax Network (GSTN), New Delhi [Writ Petition Nos. 19976 & 19977 of 2021 dated August 08, 2024] dismissed the writ petitions challenging a circular that directed tax liability creation under Section 129 of the Central Goods and Services Tax Act, 2017 ("the CGST Act") and held that tax collected at the detention stage can be claimed as a refund if excess tax is paid in regular returns.

Citation :
Writ Petition Nos. 19976 & 19977 of 2021 dated August 08, 2024

The Hon'ble Madras High Court in M/s Chetna Steel Tubes (P.) Ltd. v. Goods and Service Tax Network (GSTN), New Delhi [Writ Petition Nos. 19976 & 19977 of 2021 dated August 08, 2024] dismissed the writ petitions challenging a circular that directed tax liability creation under Section 129 of the Central Goods and Services Tax Act, 2017 ("the CGST Act") and held that tax collected at the detention stage can be claimed as a refund if excess tax is paid in regular returns.

Facts:

M/s Chetna Steel Tubes (P.) Ltd. ("the Petitioner") has filed the present writ petitions challenging the Circular No. 41/15/2018 GST dated April 13, 2018 ("the Impugned Circular").

The Petitioner contended that they cannot be burdened with tax liability twice, once at the stage of detention to get their detained goods released under Section 129 of the CGST Act and other at the stage of payment of tax in the regular returns in Form GSTR-3B. Therefore, there is no question of creation of an automatic tax liability and hence the Petitioner has also challenged the demand notices dated April 28, 2021, and April 29, 2021 ("the Impugned Notices") in the present petition.

Issue:

Whether tax collected at the stage of detention can be claimed as refund if excess tax is paid in regular returns?

Held:

The Hon'ble Madras High Court in Writ Petition Nos. 19976 & 19977 of 2021, held as under:

Noted that, as far as the period prior to January 1, 2022, is concerned, it is clear that the Petitioner whose goods are detained under Section 129 of the respective GST enactments has to bear the applicable tax and penalty. Post January 1, 2022, the law has been amended, whereby only the penalty is imposable at 200% of the tax.
Observed that, the tax is being levied twice by virtue of the impugned circular and is contrary to Section 129 of the respective GST enactments cannot be countenanced. The purpose of Section 129 of the CGST Act was to recover tax on such goods in transit, where removal of such goods fell short of any of the statutory compliance required for removal of goods. Therefore, tax was to be collected to the extent of tax that was payable in the returns at the stage of detention of such detained goods. Tax is to be debited from Petitioner's electronic credit account maintained under the respective GST Acts.
Held that, if a supplier's goods were detained and subjected to tax and penalty under Section 129 of the CGST Act as it stood prior to amendment, such a supplier is entitled to claim refund of the excess tax, if any, paid in the returns filed in Form GSTR-3B. Therefore, the apprehension expressed in the writ petitions misplaced and unwarranted. Hence, these writ petitions were dismissed. Accordingly, these writ petitions were dismissed.

OFFICIAL JUDGMENT COPY HAS BEEN ATTACHED

FAQ :

Yes, if your goods were detained and tax was paid under Section 129 of the CGST Act, and you later paid excess tax in your regular returns (Form GSTR-3B), you are entitled to claim a refund for the excess tax paid.

The main issue was whether tax collected at the detention stage could be claimed as a refund if excess tax was subsequently paid in regular GST returns.

The Madras High Court held that tax should not be levied twice. If tax was paid at the detention stage, any excess payment in regular returns is refundable.

Section 129 of the CGST Act deals with the detention, seizure, and release of goods and conveyances in transit, and the imposition of tax and penalty in such cases.

The ruling specifically addresses the refund of excess tax paid. For periods prior to January 1, 2022, both tax and penalty were applicable at detention. After this date, the law was amended to impose only a penalty of 200% of the tax.